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Financial Advisers Give SMA Support Failing Grade

Separate account managers are earning high marks when it comes to articulating their knowledge of financial markets and the investment process, but considerable improvement is needed in terms of the support they provide advisers.

That was the sentiment echoed by some of the nation's top financial advisers when asked to rate the separately managed account services of 166 asset managers. Group Five, a Princeton, N.J.-based research and consulting firm, polled 933 advisers from 10 regional broker/dealers and the major wirehouses during a six-week period beginning April 1 of this year.

Within that universe, 832 participants were regional broker/dealers and 101 were wirehouse broker/dealers. Wirehouse advisers evaluated the services of 63 managers, while the regional advisers rated 157. Overall, the study enabled each financial adviser to rate up to 10 asset managers, yielding a total of 2,893 ratings. Their responses were rated on a scale of one to five, with one and two representing negative answers, three being neutral and four and five representing positive responses.

The objective of the study was to gauge advisers' perception of the service they receive from their SMA asset managers, identify who the top managers are, pinpoint the major issues facing the SMA industry and measure trends in satisfaction. The advisers rated their services based on four main service areas of support including product education, industry education, online services and ongoing sales support. The survey also measured satisfaction with investment performance and overall satisfaction with management.

According to industry averages, the poll showed that SMA asset managers are not pulling their weight in several service areas. Financial advisers were least satisfied with certain aspects of their relationships with managers, particularly the frequency of contact with advisers. Another key concern was that managers are not providing enough support on the transition from a commission-based business to a fee-based business.

Perhaps the biggest disappointment among advisers was the functionality of company Web sites and other online services. Advisers also found that marketing literature distributed by SMA asset managers is not useful enough in helping them understand the product.

Breaking down the numbers, the respondents voted that online services were the weakest service area among managers, sporting a meager 45% approval rate. Managers also received low marks in the industry education category as well, receiving a 47% approval rate. In terms of product education, 59% of the respondents were satisfied with the service they received from managers. In those three categories, the major wirehouses were slightly more pleased than their regional counterparts.

High Marks for Knowledge

But not all the responses produced negative results. In fact, participating advisers applauded managers for their knowledge of financial markets, responsive to requests, accessibility and clear explanation of the investment process. Sixty-two percent of the respondents were satisfied with the sales support they received from asset managers. Among regional broker/dealers, that number was only 57% compared to 64% approval from wirehouses. The most striking difference between the two groups of advisers was their satisfaction with investment performance.

Less than half of all the regional broker/dealers surveyed were satisfied with the investment performance of SMA asset managers. In contrast, 65% of the major wirehouses gave positive responses on performance. Based on individual asset manager ratings, Lord Abbett received the highest score, posting a 71% approval rate. Rorer Asset Management was second with a 67% approval rate, and Navellier finished third with a 66% approval. Brandes and Capstone were also ahead of the industry average, earning marks of 64% and 56%, respectively.

Still, the big picture for the SMA industry is that only 62% of financial advisers are satisfied with the overall service they receive from asset managers, suggesting that there is significant room for improvement. In order to ensure steady growth in the SMA space, asset managers will have to beef up technology and education efforts as well as find ways to make the transition to a fee-based business a smoother ride for advisErs.

One thing is clear, though. Lord Abbett is certainly setting the standard.

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